The Development Simple Agreement for Future Equity (D-SAFE) Aims to Catalyze Investments in High-Impact Climate Solutions
HONOLULU and SAN FRANCISCO, June 18, 2024 /PRNewswire/ — Elemental Excelerator, a nonprofit investor focused on scaling climate technology for deep community impact, recently launched the Development Simple Agreement for Future Equity (D-SAFE), a new mechanism for streamlined funding of development for climate projects.
Created in partnership with law firm Wilson Sonsini, the D-SAFE underscores Elemental’s commitment to bridging the “Scale Gap” faced by companies transitioning from early-stage VC funding to later-stage growth capital. A whitepaper published by Elemental and Boston Consulting Group (BCG) identified this Scale Gap as $150 billion. Read the full report here.
Many climate projects, often needing less than $100 million, possess tremendous potential for community impact but struggle to secure the necessary development capital. The D-SAFE is modeled after Y Combinator’s Simple Agreement for Future Equity (SAFE), providing a familiar yet innovative solution to this funding challenge. The D-SAFE aims to support companies through the critical early stages of project development, including securing permits, project design, budgeting, contracting, community engagement and more, with the ultimate goal of getting climate projects developed, derisked and deployed as quickly as possible.
“Before a climate project can take off, entrepreneurs face numerous pre-project tasks that require substantial upfront investment,” said Elemental Excelerator COO, Avra van der Zee. “To tackle the Scale Gap, we need innovation in all forms – including financial innovation like the D-SAFE, which works to address this gap in development funding with the goal of accelerating the implementation of essential climate projects.”
Over the past year, Elemental has provided funding into eight scale up projects that used the D-SAFE and DSA structure. For example, Elemental made an investment into Dimensional Energy, a global leader in carbon-to-value technology, for a new facility designed to convert captured carbon dioxide and water into sustainable aviation fuel (SAF) intermediaries. In order to secure financing from Seneca Holdings, Dimensional needed to achieve certain pre-development milestones. Elemental’s $500,000 D-SAFE, paired with customized project financing and community engagement coaching, mobilized 20x as much private capital, which will enable Dimensional to begin construction in 2025.
“It may seem like a small piece of the puzzle, but Elemental’s D-SAFE provided a quick, nimble source of funding for our early development work that was key to unlocking financing from Seneca Holdings,” said Dimensional Energy CEO, Jason Salfi. “This project will not only accelerate our work to scale a drop-in replacement for aviation fuel – it will fulfill the mission of Seneca Holdings to diversify their portfolio and to generate wealth in Seneca Nation communities for years to come.”
The D-SAFE can operate either as a loan, to be repaid at the company’s discretion, or as convertible equity like a traditional SAFE, if the investor so chooses. This dual functionality offers startups a flexible and cost-effective source of funding, while allowing investors to share in the potential rewards. By directing funding to the parent company rather than a single project, the D-SAFE mitigates individual project risks and allows investors to evaluate the strength of the management team, its track record, and whether its project portfolio will lead to success overall.
“We are thrilled to partner with Elemental on this innovative financing mechanism for catalytic climate projects. As a corporate lawyer working at the intersection of climate innovation and finance for over two decades, I am all too familiar with the funding gap highlighted in the BCG and Elemental paper, and we see the D-SAFE as an innovative way to help climate entrepreneurs and investors navigate that gap. In a catalytic funding context, D-SAFE’s likeness to the popular SAFE has the potential to deliver an efficient funding mechanism to the market for startups, investors and legal teams who require capital at a phase of deployment that is so often underfunded,” said Bob O’Connor, Partner at Wilson Sonsini, who co-founded the firm’s energy and climate solutions practice and who has advised hundreds of entrepreneurs and investors to mobilize billions of dollars of capital toward the development and deployment of climate solutions.
When paired with the accompanying Development Support Agreement (DSA), funders and companies can align early on how the funding will be used and establish milestones to set clear expectations upfront.
About Elemental Excelerator
Elemental is a nonprofit investor in climate technologies with deep community impact. Elemental has a 14-year track record of investing in companies scaling essential climate solutions that make neighborhoods and homes cleaner, healthier, safer, and more affordable. Elemental, which has successfully stewarded $180 million in government and philanthropic resources, de-risks technologies for additional investment and centers social equity and community impact in project deployment.
About Wilson Sonsini
For more than 60 years, Wilson Sonsini’s services and legal disciplines have focused on addressing the principal challenges faced by the management and boards of directors of business enterprises. The firm is nationally recognized as a leading provider to growing and established clients seeking legal counsel in connection with sophisticated corporate and technology transactions; managing governance and enterprise-scale matters; assisting with intellectual property development, protection, and IP-driven transactions; representation in contested disputes; and/or advising on antitrust or other regulatory matters. With deep roots in Silicon Valley, Wilson Sonsini has more than 1,000 attorneys and 19 offices in 17 technology, business, and regulatory markets across the United States, China, and Europe. For more information, please visit www.wsgr.com.
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